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Auditing Test Bank

- Chapter 10 Cash and Financial Investments
- Chapter 13 - Test Bank
- Chapter 19 - Test Bank
- Chapter 8 - Test Bank
- Auditing & Accounting Chapter 17 TB
- Chapter 5 - Test Bank
- Chapter 20 - Test Bank
- Chapter 21 - Test Bank
- Chapter 6 - Test Bank
- Chapter 17 - Test Bank
- Chapter 18 - Test Bank
- Chapter 2 - Test Bank
- Chapter 15 - Test Bank
- principles of auditing and other assurance services Chap002_1
- Chapter 6 - Solution Manual
- Auditing and Assurance Service Ch 8 TB
- Chapter 13 - Solution Manual
- Chapter 12 - Solution Manual
- Chapter 14 - Solution Manual
- Chapter 16 - Solution Manual

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Chapter 09

Audit Sampling

True / False Questions

True False

deviation rate of 0 percent.

True False

achieved upper deviation rate of the attributes sample.

True False

4. The definition of a "deviation" for a test of a control should include only those deviations

that result in misstatements in the financial statements.

True False

True False

6. Using ratio and difference estimation for a sample is an example of a dual purpose test.

True False

7. Increases in the tolerable misstatement result in a decreased sample size when using meanper-unit estimation.

True False

9-1

8. The mean book value of the items included in a mean-per-unit sample is not directly used

in the evaluation of sample results.

True False

9. When evaluating the results of a variables sampling plan, the projected misstatement is

calculated and compared to the tolerable misstatement.

True False

10. Auditors project the misstatements found in the sample to the population when using

statistical sampling, but not when using nonstatistical sampling.

True False

The 10,000 accounts receivable of DEF Company have a total book value of $120,000. A

CPA has selected and audited a sample of 100 accounts with a total book value of $1,000 and

an audited value of $1,200.

11. Using the difference estimation technique, estimated total audited value of the population

is:

A. $100,000.

B. $120,000.

C. $140,000.

D. $144,000

12. Using the ratio estimation technique, the estimated total audited value of the population

is:

A. $100,000.

B. $120,000.

C. $140,000.

D. $144,000

9-2

13. Using the mean-per-unit estimation technique, the estimated total audited value of the

population is:

A. $100,000.

B. $120,000.

C. $140,000.

D. $144,000.

14. Using the mean-per-unit estimation method an auditor has properly calculated the

estimated total audited value of a population as $200,000. Her sample included 200 of the

population's 40,000 items. She found that, in her sample the average audited value was $1 less

than the average book value. What was the average audited value in the sample?

A. $4.

B. $5.

C. $6.

D. $10.

15. Using difference estimation, an auditor has taken a sample of 200 from a population's

40,000 items; that population has a book value of $200,000. She found that in her sample the

average audited value was $4.20, while the average book value was $5.20. What is the

estimated total audited value of the population?

A. $160,000.

B. $161,538.

C. $168,000.

D. $200,000.

16. Using ratio estimation, an auditor has taken a sample of 200 from a population's 40,000

items; that population has a book value of $200,000. She found that in her sample the average

audited value was $4.20, while the average book value was $5.20. What is the estimated total

audited value of the population?

A. $160,000.

B. $161,538.

C. $168,000.

D. $200,000.

9-3

17. Using mean-per-unit estimation, an auditor has taken a sample of 200 from a population's

40,000 items; that population has a book value of $200,000. She found that in her sample the

average audited value was $4.20, while the average book value was $5.20. What is the

estimated total audited value of the population?

A. $160,000.

B. $161,538.

C. $168,000.

D. $200,000.

18. If the projected misstatement in a nonstatistical sampling is $8,000, while the tolerable

misstatement is $9,000, what would an auditor likely conclude?

A. Since the projected misstatement is less than the tolerable misstatement, the account is not

misstated.

B. Since the projected misstatement is less than the tolerable misstatement, the account is

misstated.

C. The risk is high that the account is materially misstated.

D. The analysis has been improperly performed since the projected misstatement is unequal to

the tolerable misstatement.

A. Addresses two different accounts.

B. Functions as a substantive test and as a test of controls.

C. Functions as an analytical procedure and a substantive test.

D. Substantiates an ending balance and the transactions making up the balance.

The 1000 accounts receivable of Winco Company have a total book value of $20,000

(Average book value = $20). Bob Duffo, CPA, has selected and audited a sample of 50

accounts with the following mean values:

1. Book value of $19.

2. Audited value of $19.60.

9-4

20. What is the estimated total audited value using mean-per-unit sampling?

A. $19,000.

B. $19,600.

C. $20,000.

D. $20,632.

21. What is the estimated total audited value using difference estimation sampling?

A. $19,387.

B. $19,400.

C. $19,600.

D. $20,600.

22. If all other factors specified in an attributes sampling plan remain constant, decreasing the

tolerable rate and decreasing the risk of assessing control risk too low would have what effect

on sample size?

A. Increase.

B. Remain the same.

C. Decrease.

D. Indeterminate, depends upon exact change being made.

23. If all other factors specified in an attributes sampling plan remain constant, decreasing the

tolerable rate and increasing the estimated population deviation rate would have what effect

on sample size?

A. Increase.

B. Remain the same.

C. Decrease.

D. Indeterminate, depends upon exact change being made.

24. An increase in the tolerable misstatement has what effect on the planned allowance for

sampling risk?

A. Increases.

B. Decreases.

C. No effect.

D. Indeterminate.

9-5

25. Which of the following is not generally used for selecting samples?

A. Random number tables.

B. Random number generators.

C. Physical representation numbers.

D. Systematic selection.

26. In performing a test of a control last year the auditors specified a tolerable deviation rate

of X percent. This year the auditors have specified a tolerable rate of less than X percent.

Assuming that all other factors remain the same, which of the following is true regarding the

relationship between this year's sample size compared to last year's sample size?

A. This year's sample is larger than last year's sample.

B. This year's sample is smaller than last year's sample.

C. This year's sample is equal to last year's sample.

D. This year's sample is indeterminate in relation to last year's sample.

27. The auditor using nonstatistical attributes sampling, but who nevertheless has chosen the

sample in conformity with random selection procedures:

A. Need not consider the risk of assessing control risk too low.

B. Has committed a nonsampling error.

C. Will have to use discovery sampling techniques to evaluate the results.

D. Should compare the deviation rate of the sample to the tolerable rate.

28. When performing tests of controls over authorization of cash receipts, which of the

following sampling methods would be most appropriate?

A. Attributes.

B. Ratio.

C. Stratified.

D. Variables.

9-6

29. Which of the following statistical sampling techniques involves taking samples in a series

of stages?

A. Systematic sampling.

B. Sequential sampling.

C. Continuous sampling.

D. Multiple location sampling.

30. Which of the following is generally not true about statistical sampling as compared to

nonstatistical sampling?

A. Statistical samples are more representative of the population.

B. Statistical sample plans involve additional costs of evaluation.

C. Statistical sampling allows a more objective evaluation of sample results.

D. Statistical sampling may assist the auditors in designing more efficient samples.

31. When using statistical sampling, which of the following need not be known to evaluate

the results of an attributes sample?

A. Sample size.

B. Risk of assessing control risk too low.

C. Number of deviations in the population.

D. Number of deviations found in the sample.

32. When the auditors have decided to use statistical rather than nonstatistical sampling, a

disadvantage is that:

A. Designing efficient samples is more difficult.

B. The costs of training staff may be higher.

C. Sampling without replacement must be used.

D. Objectively evaluating results is impossible.

33. Changing from a sampling plan using random selection with replacement to random

selection without replacement has what effect on the required sample size?

A. Increases.

B. Decreases

C. No effect.

D. An indeterminate effect.

9-7

34. When the auditors have chosen to test a control, what relationship will the tolerable rate

normally have when compared to the expected rate of deviations in the sample?

A. Exceed.

B. Equal.

C. Be less than.

D. Indefinite.

35. Increases in the planned allowance for sampling risk have what effect on required sample

size?

A. Increases.

B. Decreases.

C. No effect.

D. Indeterminate.

36. When using sampling for tests of controls, which of the following audit consequences

may follow?

A. If sample results indicate that the control is operating effectively, but in fact it is not,

control risk will be assessed too low.

B. If sample results indicate that the control is operating effectively, but in fact it is not,

control risk will be assessed too high.

C. If sample results indicate that the control is not operating effectively, but in fact it is

operating effectively, the audit is likely to be faulty because of reduced substantive tests.

D. If sample results indicate that the control is not operating effectively, but in fact it is

operating effectively, control risk will be assessed too low.

37. The auditors expect a population deviation rate of billing errors of two percent, and have

established a tolerable rate of five percent. The sampling approach most likely to be used is:

A. Attributes sampling.

B. Stratified sequential sampling.

C. Discovery sampling.

D. None, as sampling does not seem appropriate in this situation.

9-8

38. The auditors expect a population deviation rate of billing errors of eight percent, and have

established a tolerable rate of five percent. The sampling approach most likely to be used is:

A. Attributes sampling.

B. Stratified random sampling.

C. Variables sampling.

D. None, as sampling does not seem appropriate in this situation.

39. Which of the following may be used to reduce the risk of nonsampling errors?

A. Increasing the size of audit samples.

B. Stratifying audit samples.

C. Adequately planning audit samples.

D. Using statistical sampling techniques.

40. Which of the following types of risk is of critical importance to auditors in performing

tests of controls?

A. The risk of assessing control risk too low.

B. The risk of assessing control risk too high.

C. The risk of incorrect acceptance.

D. The risk of incorrect rejection.

control data processing procedure is described as a:

A. Statistical error.

B. Sampling misstatement.

C. Standard error of the mean.

D. Nonsampling error.

42. What effect does obtaining a sample with a standard deviation larger than that estimated

during planning have on the adjusted allowance for sampling risk?

A. Increases.

B. Decreases.

C. No effect.

D. Indeterminate.

9-9

The 2000 accounts receivable of ABC Company have a total book value of $40,000. Bob

Rotter, CPA, has selected and audited a sample of 100 accounts with a total book value of

$1,950. The audited value of the 100 accounts in the sample is $1,875.

43. Using the mean-per-unit estimation technique, Rotter's estimate (to the nearest dollar) of

year-end accounts receivable balance would be:

A. $37,500

B. $38,462

C. $38,500

D. $41,600

44. Using the ratio estimation technique, Rotter's estimate (to the nearest dollar) of year-end

accounts receivable balance would be:

A. $37,500

B. $38,462

C. $38,500

D. $41,600

45. Using the difference estimation technique, Rotter's estimate (to the nearest dollar) of yearend accounts receivable balance would be:

A. $37,500

B. $38,462

C. $38,500

D. $41,600

46. The 3000 accounts receivable of DEF Company have a total book value of $60,000. Bob

Smith, CPA, has selected and audited a sample of 100 accounts with a total book value of

$2,100. Using the difference estimation technique, Smith has properly estimated a projected

misstatement of an overstatement of $6,000 for the entire population. The audited value of

Smith's sample is:

A. $1,700

B. $1,800

C. $1,900

D. $2,300

9-10

47. The 3000 accounts receivable of DEF Company have a total book value of $60,000. Bob

Smith, CPA, has selected and audited a sample of 100 accounts with a total book value of

$2,100. Using the difference estimation technique, Smith has properly estimated a projected

misstatement of a $9,000 overstatement for the entire population. The estimated total audited

value of the population is:

A. $51,000

B. $58,000

C. $60,000

D. $69,000

48. The 4000 accounts receivable of GHI Company have a total book value of $60,000. Bob

Smith, CPA, has selected and audited a sample of 100 accounts with a total book value of

$1,600. Using the mean-per-unit estimation technique, Smith has properly estimated a

projected misstatement of a $8,000 overstatement for the entire population. The audited value

of Smith's sample is:

A. $1,300

B. $1,400

C. $1,600

D. $1,800

49. Which of the following is a correct statement with respect to evaluating results when

using nonstatistical sampling for substantive tests?

A. When the projected misstatement exceeds the tolerable misstatement, the auditor should

conclude that the population is not misstated.

B. The closer the projected misstatement is to the tolerable misstatement, the higher the risk

of material misstatement.

C. When the projected misstatement is equal to zero, the auditors may conclude with certainty

that no misstatements exist in the account.

D. When the projected misstatement percentage exceeds the risk of incorrect acceptance the

auditors will generally conclude that the population is materially misstated.

9-11

misstatement of $70,000 and a book value of $700,000. After performing the sampling plan,

the auditors calculated an adjusted allowance for sampling risk of $45,000 and a point

estimate of the population's total audited value to be $650,000. Based on these results, the

auditor would:

A. Because the tolerable misstatement exceeds the adjusted allowance for sampling risk,

conclude that the population does not contain a material misstatement.

B. Because the total audited value tolerable misstatement includes the book value, conclude

that the population does not contain a material misstatement.

C. Because the tolerable misstatement exceeds the adjusted allowance for sampling risk,

conclude that there is too great a risk that the account balance is materially misstated.

D. Because the total audited value adjusted allowance for sampling risk does not include the

book value, conclude that there is too great a risk that the account balance is materially

misstated.

misstatement of $70,000 and a book value of $700,000. After performing the sampling plan,

the auditors calculated an adjusted allowance for sampling risk of $45,000 and a point

estimate of the population's total audited value to be $640,000. The projected misstatement

based on this sample is:

A. $5,000

B. $45,000

C. $60,000

D. $70,000

52. The auditors have audited a sample with a standard deviation of audited values larger than

they had originally estimated. In this situation, to maintain the risk of incorrect acceptance at

its predetermined level without increasing the size of the sample, which of the following

statements is correct?

A. The adjusted allowance for sampling risk will be smaller than had been planned.

B. The adjusted allowance for sampling risk will be larger than had been planned.

C. The risk of incorrect rejection will necessarily decrease.

D. The size of the population must be decreased.

9-12

53. In the past, the auditors have found that the book value of a receivable account has been

related to the amount the account is misstated (i.e., large accounts have large misstatements

and small accounts have small misstatements). Which of the following techniques is most

likely to be efficient?

A. Mean-per-unit estimation.

B. Ratio estimation.

C. Difference estimation.

D. Sequential sampling estimation.

54. Which of the following statements is correct concerning the use of nonstatistical sampling

for substantive tests?

A. Its use is generally acceptable only for populations with an immaterial book value.

B. It requires the use of structured sample size selection techniques to be acceptable.

C. It may be especially useful in circumstances in which the combination of inherent and

control risk is at the maximum level.

D. Results will be projected to the population.

55. Which of the following situations will result in the auditors concluding that the risk of

material misstatement is too high when using nonstatistical sampling for substantive tests?

A. The projected misstatement exceeds the tolerable misstatement.

B. The allowance for sampling risk exceeds the projected misstatement.

C. The risk of incorrect acceptance exceeds the risk of incorrect rejection.

D. The tolerable misstatement exceeds the sample net misstatement.

56. During the final planning of the accounts receivable program a CPA specified a tolerable

misstatement of $30,000, instead of the $20,000 contained in the preliminary audit program.

What would be the impact of this change?

A. A decrease in population standard deviation.

B. An increase in sample standard deviation.

C. An increase in required sample size.

D. A decrease in the required sample size.

9-13

57. Which of the following is an advantage of systematic selection over random number

selection?

A. It provides a stronger basis for statistical conclusions.

B. It enables the auditor to use the more efficient "sampling with replacement" tables.

C. There may be correlation between the location of items in the population, the feature of

sampling interest, and the sampling interval.

D. It does not require establishment of correspondence between random numbers and items in

the population.

58. Statistical sampling generally may be applied to test internal control when the client's

internal control procedures:

A. Depend primarily on appropriate segregation of duties.

B. Are carefully reduced to writing and are included in client accounting manuals.

C. Leave an audit trail in the form of evidence of compliance.

D. Enable the detection of material fraud in the accounting records.

59. Which of the following statements is correct about the sample size in statistical sampling

when testing internal controls?

A. The auditor should consider the tolerable rate of deviation from the controls being tested in

determining sample size.

B. As the likely rate of deviation decreases, the auditor should increase the planned sample

size.

C. The allowable risk of assessing control risk too low has no effect on the planned sample

size.

D. Of all the factors to be considered, the population size has the greatest effect on the sample

size.

60. To determine sample size in an attribute sampling application, what must be specified?

A. Population mean, expected error rate, allowance for sampling risk.

B. Allowance for sampling risk, risk of assessing control risk too low, standard deviation.

C. Allowance for sampling risk, risk of assessing control risk too low, expected deviation rate.

D. Population mean, standard deviation, allowance for sampling risk.

9-14

61. The tolerable deviation rate in sampling for tests of controls is:

A. Used to determine the probability of the auditor's conclusion based upon reliance factors.

B. The probability that the financial statements are not materially in error.

C. A measure of the reliability of substantive tests.

D. The rate the auditor will tolerate without modifying the planned assessment of control risk.

62. In testing accounts receivable, an auditor sends out positive confirmation requests to 100

randomly selected customers. A customer returns the confirmation indicating that the balance

is correct when, in fact, the balance is overstated. This is an example of:

A. Projected misstatement.

B. Sampling error.

C. Standard error.

D. Nonsampling error.

items. From experience, the auditor knows that a few specific items are subject to unusually

large amounts of shrinkage. In using statistical sampling, the auditor's best course of action is

to:

A. Eliminate any of the items known to be subject to unusually large amounts of shrinkage.

B. Increase the sample size to lessen the effect of the items subject to unusually large amounts

of shrinkage.

C. Stratify the inventory population so that items subject to unusually large amounts of

shrinkage are reviewed separately.

D. Continue to draw new samples until a sample is drawn which includes none of the items

known to be subject to large amounts of shrinkage.

64. If all other factors specified in an attributes sampling plan remain constant, changing the

specified tolerable rate from 6% to 10%, and changing the specified risk of assessing control

risk too low from 3% to 7% would cause the required sample size to:

A. Increase.

B. Remain the same.

C. Decrease.

D. Change by 4%.

9-15

65. Which of the following factors does an auditor need to consider in planning a particular

audit sample for a test of control?

A. Number of items in the population.

B. Total dollar amount of the items to be sampled.

C. Acceptable level of risk of assessing control risk too low.

D. Tolerable misstatement.

66. When using a statistical sampling plan, the auditors would probably require a smaller

sample if the:

A. Population increases.

B. Desired allowance for sampling risk decreases.

C. Desired risk of incorrect acceptance increases.

D. Expected deviation rate increases.

67. Which of the following statements is correct concerning statistical sampling in tests of

controls?

A. The population size has little effect on determining sample size except for very small

populations.

B. The expected population deviation rate has little or no effect on determining sample size

except for very small populations.

C. As the population size doubles, the sample size also should double.

D. For a given tolerable rate, a larger sample size should be selected as the expected

population deviation rate decreases.

A. Mathematically measure risk.

B. Eliminate the need for judgmental decisions.

C. Define the values of allowance for sampling risk and tolerable misstatement required to

provide audit satisfaction.

D. Have been established in the courts to be superior to judgmental sampling.

9-16

69. In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control

risk too high relate to the:

A. Efficiency of the audit.

B. Effectiveness of the audit.

C. Selection of the sample.

D. Audit quality controls.

70. When performing a test of a control over cash disbursements, a CPA may use a systematic

sampling technique with a start at any randomly selected item. The biggest disadvantage of

this type of sampling is that the items in the population:

A. Must be recorded in a systematic pattern before the sample can be drawn.

B. May occur in a systematic pattern and destroy the sample randomness.

C. May systematically occur more than once in the sample.

D. Must be systematically replaced in the population after sampling.

71. While performing a substantive test of details during an audit, the auditor determined that

the sample results supported the conclusion that the recorded account balance was materially

misstated. It was, in fact, not materially misstated. This situation illustrates the risk of:

A. Incorrect acceptance.

B. Incorrect rejection.

C. Assessing control risk too high.

D. Assessing control risk too low.

72. An auditor plans to examine a sample of 20 checks for counter signatures as prescribed by

the client's control procedures. One of the checks in the chosen sample of 20 cannot be found.

The auditor should consider the reasons for this limitation and:

A. Evaluate the results as if the sample size had been 19.

B. Treat the missing check as a deviation for the purpose of evaluating the sample.

C. Treat the missing check in the same manner as the majority of the other 19 checks, i.e.,

countersigned or not.

D. Choose another check to replace the missing check in the sample.

9-17

73. There are many kinds of statistical estimates that an auditor may find useful, but basically

every statistical estimate in auditing is of either a quantity or of an error rate. The statistical

terms that roughly correspond to "quantities" and "occurrence rate," respectively, are:

A. Attributes and variable.

B. Variables and attributes.

C. Constants and attributes.

D. Constants and variables.

74. Which of the following best illustrates the concept of sampling risk?

A. A randomly chosen sample may not be representative of the population as a whole on the

characteristic of interest.

B. An auditor may select audit procedures that are not appropriate to achieve the specific

objective.

C. An auditor may fail to recognize deviations in the documents examined for the chosen

sample.

D. The documents related to the chosen sample may not be available for inspection.

75. Which of the following statistical selection techniques is least desirable for use by an

auditor?

A. Systematic selection.

B. Stratified selection.

C. Block selection.

D. Sequential selection.

76. Various factors influence the sample size for a substantive test of details of an account

balance. All other factors being equal, which of the following would lead to a larger sample

size?

A. Lower assessment of control risk.

B. Greater reliance on analytical procedures.

C. Smaller expected frequency of misstatements.

D. Smaller measure of tolerable misstatement.

9-18

77. An important statistic to consider when using a statistical sampling audit plan is the

population variability. The population variability is measured by the:

A. Sample mean.

B. Standard deviation.

C. Standard error of the sample mean.

D. Estimated population total minus the actual population total.

78. In variables estimation sampling, the sample standard deviation is used to calculate the:

A. Point estimate of central tendency.

B. Tainting of the sample interval.

C. Risk of incorrect acceptance.

D. Adjusted allowance for sampling risk.

79. Use of the ratio estimation sampling technique to estimate dollar amounts is inappropriate

when:

A. The total book value is known and corresponds to the sum of all the individual book

values.

B. A book value for each sample item is unknown.

C. There are some observed differences between audited values and book values.

D. The audited values are nearly proportional to the book value.

9-19

Matching Questions

80. Auditors have a variety of sampling approaches available. For each approach in the first

column, identify the correct statement in the second column. Each statement may be used

once, more than once, or not at all.

1. Attributes sampling

3. Discovery sampling

4. Probability-proportional-to-size

sampling

5. Mean-per-unit estimation

sampling

method that arrives at an estimated

deviation rate.

A classical method that uses both

the audited and book values of items in

the sample to obtain an estimated total

audited value.

A method that is most effective in

circumstances in which auditors expect

a very low rate of occurrence of some

critical deviation (e.g., a fraudulent

cash disbursement).

A classical method that uses only

the audited values of items in the

sample (not the book values) to obtain

an estimated total audited value.

A method that defines the sampling

unit as each individual dollar.

A classical method that uses both

the audited and book values of items in

the sample to obtain an estimated total

audited value.

9-20

____

____

____

____

____

____

Essay Questions

81. Audit sampling is used in conjunction with many audit tests, and may be performed on a

statistical or nonstatistical basis.

a. Define the term audit sampling.

b. List and explain two advantages of the use of statistical sampling as compared to

nonstatistical sampling.

82. Teal Corporation has 2,000 accounts receivable, with a total book value of $200,000.

Ricardo Ramaro, CPA, has selected and audited a sample of 100 of the accounts with a

combined book value of $10,100; the total of their audited values was $11,000. Using the

mean-per-unit method, calculate the:

a. Accounts receivable estimated audited value.

b. Projected misstatement.

9-21

83. The auditors are using mean-per-unit sampling to evaluate the reasonableness of the book

value of the accounts receivable of Smith, Inc. Smith has 10,000 receivable accounts with a

total book value of $800,000. The auditors estimate the population's standard deviation as

being equal to $25. After examining the overall audit plan, the auditors believe that the

account's tolerable misstatement is $40,000, and that a risk of incorrect rejection of .10 (risk

coefficient = 1.64) and a risk of incorrect acceptance of .15 (risk coefficient = 1.04) should be

used.

Required:

a. Calculate the required sample size.

Now ignore your sample size calculation in part "a," and assume that your answer was a

sample size of 289 (the square root of 289 is 17) and that you obtained the following results:

Average audited value of items in sample: $76

Average book value of items in sample: $78

Standard Deviation in the sample (audited values): $24

Standard Deviation in the sample (book values): $26

b. Using mean-per-unit sampling, calculate the projected misstatement for the population.

c. Using mean-per-unit sampling, calculate the adjusted allowance for sampling risk and use it

to form a statistical conclusion concerning the book value of the population ($800,000). That

is, calculate an interval and either "accept" or "reject" the client's book value.

9-22

TRUE

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-02 Describe the methods of selecting a representative sample.

Topic: Statistical and Nonstatistical Sampling

deviation rate of 0 percent.

TRUE

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-03 Understand the different types of sampling plans used in auditing.

Topic: Statistical and Nonstatistical Sampling

9-23

achieved upper deviation rate of the attributes sample.

TRUE

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Attributes Sampling

4. The definition of a "deviation" for a test of a control should include only those deviations

that result in misstatements in the financial statements.

FALSE

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Attributes Sampling

9-24

TRUE

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Audit Sampling for Tests of Controls

6. Using ratio and difference estimation for a sample is an example of a dual purpose test.

FALSE

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-07 Describe the difference and ratio methods of estimation.

Topic: Classical Variables Sampling

9-25

7. Increases in the tolerable misstatement result in a decreased sample size when using meanper-unit estimation.

TRUE

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

8. The mean book value of the items included in a mean-per-unit sample is not directly used

in the evaluation of sample results.

TRUE

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

9. When evaluating the results of a variables sampling plan, the projected misstatement is

calculated and compared to the tolerable misstatement.

TRUE

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

9-26

10. Auditors project the misstatements found in the sample to the population when using

statistical sampling, but not when using nonstatistical sampling.

FALSE

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-01 Distinguish between statistical and nonstatistical sampling.

Topic: Statistical and Nonstatistical Sampling

The 10,000 accounts receivable of DEF Company have a total book value of $120,000. A

CPA has selected and audited a sample of 100 accounts with a total book value of $1,000 and

an audited value of $1,200.

11. Using the difference estimation technique, estimated total audited value of the population

is:

A. $100,000.

B. $120,000.

C. $140,000.

D. $144,000

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-07 Describe the difference and ratio methods of estimation.

Topic: Classical Variables Sampling

9-27

12. Using the ratio estimation technique, the estimated total audited value of the population

is:

A. $100,000.

B. $120,000.

C. $140,000.

D. $144,000

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-07 Describe the difference and ratio methods of estimation.

Topic: Classical Variables Sampling

13. Using the mean-per-unit estimation technique, the estimated total audited value of the

population is:

A. $100,000.

B. $120,000.

C. $140,000.

D. $144,000.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

9-28

14. Using the mean-per-unit estimation method an auditor has properly calculated the

estimated total audited value of a population as $200,000. Her sample included 200 of the

population's 40,000 items. She found that, in her sample the average audited value was $1 less

than the average book value. What was the average audited value in the sample?

A. $4.

B. $5.

C. $6.

D. $10.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

15. Using difference estimation, an auditor has taken a sample of 200 from a population's

40,000 items; that population has a book value of $200,000. She found that in her sample the

average audited value was $4.20, while the average book value was $5.20. What is the

estimated total audited value of the population?

A. $160,000.

B. $161,538.

C. $168,000.

D. $200,000.

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-07 Describe the difference and ratio methods of estimation.

Topic: Classical Variables Sampling

9-29

16. Using ratio estimation, an auditor has taken a sample of 200 from a population's 40,000

items; that population has a book value of $200,000. She found that in her sample the average

audited value was $4.20, while the average book value was $5.20. What is the estimated total

audited value of the population?

A. $160,000.

B. $161,538.

C. $168,000.

D. $200,000.

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-07 Describe the difference and ratio methods of estimation.

Topic: Classical Variables Sampling

17. Using mean-per-unit estimation, an auditor has taken a sample of 200 from a population's

40,000 items; that population has a book value of $200,000. She found that in her sample the

average audited value was $4.20, while the average book value was $5.20. What is the

estimated total audited value of the population?

A. $160,000.

B. $161,538.

C. $168,000.

D. $200,000.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

9-30

18. If the projected misstatement in a nonstatistical sampling is $8,000, while the tolerable

misstatement is $9,000, what would an auditor likely conclude?

A. Since the projected misstatement is less than the tolerable misstatement, the account is not

misstated.

B. Since the projected misstatement is less than the tolerable misstatement, the account is

misstated.

C. The risk is high that the account is materially misstated.

D. The analysis has been improperly performed since the projected misstatement is unequal to

the tolerable misstatement.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-08 Plan; perform; and evaluate samples for substantive procedures using nonstatistical methods.

Topic: Nonstatistical Sampling for Substantive Procedures

A. Addresses two different accounts.

B. Functions as a substantive test and as a test of controls.

C. Functions as an analytical procedure and a substantive test.

D. Substantiates an ending balance and the transactions making up the balance.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-03 Understand the different types of sampling plans used in auditing.

Topic: Statistical and Nonstatistical Sampling

The 1000 accounts receivable of Winco Company have a total book value of $20,000

(Average book value = $20). Bob Duffo, CPA, has selected and audited a sample of 50

accounts with the following mean values:

1. Book value of $19.

2. Audited value of $19.60.

9-31

20. What is the estimated total audited value using mean-per-unit sampling?

A. $19,000.

B. $19,600.

C. $20,000.

D. $20,632.

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

21. What is the estimated total audited value using difference estimation sampling?

A. $19,387.

B. $19,400.

C. $19,600.

D. $20,600.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-07 Describe the difference and ratio methods of estimation.

Topic: Classical Variables Sampling

9-32

22. If all other factors specified in an attributes sampling plan remain constant, decreasing the

tolerable rate and decreasing the risk of assessing control risk too low would have what effect

on sample size?

A. Increase.

B. Remain the same.

C. Decrease.

D. Indeterminate, depends upon exact change being made.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Attributes Sampling

23. If all other factors specified in an attributes sampling plan remain constant, decreasing the

tolerable rate and increasing the estimated population deviation rate would have what effect

on sample size?

A. Increase.

B. Remain the same.

C. Decrease.

D. Indeterminate, depends upon exact change being made.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Attributes Sampling

9-33

24. An increase in the tolerable misstatement has what effect on the planned allowance for

sampling risk?

A. Increases.

B. Decreases.

C. No effect.

D. Indeterminate.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Attributes Sampling

25. Which of the following is not generally used for selecting samples?

A. Random number tables.

B. Random number generators.

C. Physical representation numbers.

D. Systematic selection.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-02 Describe the methods of selecting a representative sample.

Topic: Statistical and Nonstatistical Sampling

9-34

26. In performing a test of a control last year the auditors specified a tolerable deviation rate

of X percent. This year the auditors have specified a tolerable rate of less than X percent.

Assuming that all other factors remain the same, which of the following is true regarding the

relationship between this year's sample size compared to last year's sample size?

A. This year's sample is larger than last year's sample.

B. This year's sample is smaller than last year's sample.

C. This year's sample is equal to last year's sample.

D. This year's sample is indeterminate in relation to last year's sample.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Attributes Sampling

27. The auditor using nonstatistical attributes sampling, but who nevertheless has chosen the

sample in conformity with random selection procedures:

A. Need not consider the risk of assessing control risk too low.

B. Has committed a nonsampling error.

C. Will have to use discovery sampling techniques to evaluate the results.

D. Should compare the deviation rate of the sample to the tolerable rate.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-08 Plan; perform; and evaluate samples for substantive procedures using nonstatistical methods.

Topic: Nonstatistical Sampling for Substantive Procedures

9-35

28. When performing tests of controls over authorization of cash receipts, which of the

following sampling methods would be most appropriate?

A. Attributes.

B. Ratio.

C. Stratified.

D. Variables.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Attributes Sampling

29. Which of the following statistical sampling techniques involves taking samples in a series

of stages?

A. Systematic sampling.

B. Sequential sampling.

C. Continuous sampling.

D. Multiple location sampling.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Attributes Sampling

9-36

30. Which of the following is generally not true about statistical sampling as compared to

nonstatistical sampling?

A. Statistical samples are more representative of the population.

B. Statistical sample plans involve additional costs of evaluation.

C. Statistical sampling allows a more objective evaluation of sample results.

D. Statistical sampling may assist the auditors in designing more efficient samples.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-01 Distinguish between statistical and nonstatistical sampling.

Topic: Statistical and Nonstatistical Sampling

31. When using statistical sampling, which of the following need not be known to evaluate

the results of an attributes sample?

A. Sample size.

B. Risk of assessing control risk too low.

C. Number of deviations in the population.

D. Number of deviations found in the sample.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Attributes Sampling

9-37

32. When the auditors have decided to use statistical rather than nonstatistical sampling, a

disadvantage is that:

A. Designing efficient samples is more difficult.

B. The costs of training staff may be higher.

C. Sampling without replacement must be used.

D. Objectively evaluating results is impossible.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-01 Distinguish between statistical and nonstatistical sampling.

Topic: Statistical and Nonstatistical Sampling

33. Changing from a sampling plan using random selection with replacement to random

selection without replacement has what effect on the required sample size?

A. Increases.

B. Decreases

C. No effect.

D. An indeterminate effect.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-02 Describe the methods of selecting a representative sample.

Topic: Statistical and Nonstatistical Sampling

9-38

34. When the auditors have chosen to test a control, what relationship will the tolerable rate

normally have when compared to the expected rate of deviations in the sample?

A. Exceed.

B. Equal.

C. Be less than.

D. Indefinite.

AACSB: Technology

AICPA BB: Critical Thinking

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-04 Explain the effects of changes in various population characteristics and changes in sampling risk on required

sample size.

Topic: Statistical and Nonstatistical Sampling

35. Increases in the planned allowance for sampling risk have what effect on required sample

size?

A. Increases.

B. Decreases.

C. No effect.

D. Indeterminate.

AACSB: Technology

AICPA BB: Critical Thinking

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-04 Explain the effects of changes in various population characteristics and changes in sampling risk on required

sample size.

Topic: Statistical and Nonstatistical Sampling

9-39

36. When using sampling for tests of controls, which of the following audit consequences

may follow?

A. If sample results indicate that the control is operating effectively, but in fact it is not,

control risk will be assessed too low.

B. If sample results indicate that the control is operating effectively, but in fact it is not,

control risk will be assessed too high.

C. If sample results indicate that the control is not operating effectively, but in fact it is

operating effectively, the audit is likely to be faulty because of reduced substantive tests.

D. If sample results indicate that the control is not operating effectively, but in fact it is

operating effectively, control risk will be assessed too low.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Audit Sampling for Tests of Controls

37. The auditors expect a population deviation rate of billing errors of two percent, and have

established a tolerable rate of five percent. The sampling approach most likely to be used is:

A. Attributes sampling.

B. Stratified sequential sampling.

C. Discovery sampling.

D. None, as sampling does not seem appropriate in this situation.

AACSB: Technology

AICPA BB: Critical Thinking

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-04 Explain the effects of changes in various population characteristics and changes in sampling risk on required

sample size.

Topic: Statistical and Nonstatistical Sampling

9-40

38. The auditors expect a population deviation rate of billing errors of eight percent, and have

established a tolerable rate of five percent. The sampling approach most likely to be used is:

A. Attributes sampling.

B. Stratified random sampling.

C. Variables sampling.

D. None, as sampling does not seem appropriate in this situation.

AACSB: Technology

AICPA BB: Critical Thinking

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-04 Explain the effects of changes in various population characteristics and changes in sampling risk on required

sample size.

Topic: Statistical and Nonstatistical Sampling

39. Which of the following may be used to reduce the risk of nonsampling errors?

A. Increasing the size of audit samples.

B. Stratifying audit samples.

C. Adequately planning audit samples.

D. Using statistical sampling techniques.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-01 Distinguish between statistical and nonstatistical sampling.

Topic: Statistical and Nonstatistical Sampling

9-41

40. Which of the following types of risk is of critical importance to auditors in performing

tests of controls?

A. The risk of assessing control risk too low.

B. The risk of assessing control risk too high.

C. The risk of incorrect acceptance.

D. The risk of incorrect rejection.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Audit Sampling for Tests of Controls

control data processing procedure is described as a:

A. Statistical error.

B. Sampling misstatement.

C. Standard error of the mean.

D. Nonsampling error.

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Attributes Sampling

9-42

42. What effect does obtaining a sample with a standard deviation larger than that estimated

during planning have on the adjusted allowance for sampling risk?

A. Increases.

B. Decreases.

C. No effect.

D. Indeterminate.

AACSB: Technology

AICPA BB: Critical Thinking

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-04 Explain the effects of changes in various population characteristics and changes in sampling risk on required

sample size.

Topic: Statistical and Nonstatistical Sampling

The 2000 accounts receivable of ABC Company have a total book value of $40,000. Bob

Rotter, CPA, has selected and audited a sample of 100 accounts with a total book value of

$1,950. The audited value of the 100 accounts in the sample is $1,875.

43. Using the mean-per-unit estimation technique, Rotter's estimate (to the nearest dollar) of

year-end accounts receivable balance would be:

A. $37,500

B. $38,462

C. $38,500

D. $41,600

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

9-43

44. Using the ratio estimation technique, Rotter's estimate (to the nearest dollar) of year-end

accounts receivable balance would be:

A. $37,500

B. $38,462

C. $38,500

D. $41,600

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-07 Describe the difference and ratio methods of estimation.

Topic: Classical Variables Sampling

45. Using the difference estimation technique, Rotter's estimate (to the nearest dollar) of yearend accounts receivable balance would be:

A. $37,500

B. $38,462

C. $38,500

D. $41,600

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-07 Describe the difference and ratio methods of estimation.

Topic: Classical Variables Sampling

9-44

46. The 3000 accounts receivable of DEF Company have a total book value of $60,000. Bob

Smith, CPA, has selected and audited a sample of 100 accounts with a total book value of

$2,100. Using the difference estimation technique, Smith has properly estimated a projected

misstatement of an overstatement of $6,000 for the entire population. The audited value of

Smith's sample is:

A. $1,700

B. $1,800

C. $1,900

D. $2,300

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-07 Describe the difference and ratio methods of estimation.

Topic: Classical Variables Sampling

47. The 3000 accounts receivable of DEF Company have a total book value of $60,000. Bob

Smith, CPA, has selected and audited a sample of 100 accounts with a total book value of

$2,100. Using the difference estimation technique, Smith has properly estimated a projected

misstatement of a $9,000 overstatement for the entire population. The estimated total audited

value of the population is:

A. $51,000

B. $58,000

C. $60,000

D. $69,000

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-07 Describe the difference and ratio methods of estimation.

Topic: Classical Variables Sampling

9-45

48. The 4000 accounts receivable of GHI Company have a total book value of $60,000. Bob

Smith, CPA, has selected and audited a sample of 100 accounts with a total book value of

$1,600. Using the mean-per-unit estimation technique, Smith has properly estimated a

projected misstatement of a $8,000 overstatement for the entire population. The audited value

of Smith's sample is:

A. $1,300

B. $1,400

C. $1,600

D. $1,800

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

49. Which of the following is a correct statement with respect to evaluating results when

using nonstatistical sampling for substantive tests?

A. When the projected misstatement exceeds the tolerable misstatement, the auditor should

conclude that the population is not misstated.

B. The closer the projected misstatement is to the tolerable misstatement, the higher the risk

of material misstatement.

C. When the projected misstatement is equal to zero, the auditors may conclude with certainty

that no misstatements exist in the account.

D. When the projected misstatement percentage exceeds the risk of incorrect acceptance the

auditors will generally conclude that the population is materially misstated.

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-01 Distinguish between statistical and nonstatistical sampling.

Topic: Statistical and Nonstatistical Sampling

9-46

misstatement of $70,000 and a book value of $700,000. After performing the sampling plan,

the auditors calculated an adjusted allowance for sampling risk of $45,000 and a point

estimate of the population's total audited value to be $650,000. Based on these results, the

auditor would:

A. Because the tolerable misstatement exceeds the adjusted allowance for sampling risk,

conclude that the population does not contain a material misstatement.

B. Because the total audited value tolerable misstatement includes the book value, conclude

that the population does not contain a material misstatement.

C. Because the tolerable misstatement exceeds the adjusted allowance for sampling risk,

conclude that there is too great a risk that the account balance is materially misstated.

D. Because the total audited value adjusted allowance for sampling risk does not include the

book value, conclude that there is too great a risk that the account balance is materially

misstated.

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

misstatement of $70,000 and a book value of $700,000. After performing the sampling plan,

the auditors calculated an adjusted allowance for sampling risk of $45,000 and a point

estimate of the population's total audited value to be $640,000. The projected misstatement

based on this sample is:

A. $5,000

B. $45,000

C. $60,000

D. $70,000

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

9-47

52. The auditors have audited a sample with a standard deviation of audited values larger than

they had originally estimated. In this situation, to maintain the risk of incorrect acceptance at

its predetermined level without increasing the size of the sample, which of the following

statements is correct?

A. The adjusted allowance for sampling risk will be smaller than had been planned.

B. The adjusted allowance for sampling risk will be larger than had been planned.

C. The risk of incorrect rejection will necessarily decrease.

D. The size of the population must be decreased.

AACSB: Technology

AICPA BB: Critical Thinking

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-04 Explain the effects of changes in various population characteristics and changes in sampling risk on required

sample size.

Topic: Statistical and Nonstatistical Sampling

53. In the past, the auditors have found that the book value of a receivable account has been

related to the amount the account is misstated (i.e., large accounts have large misstatements

and small accounts have small misstatements). Which of the following techniques is most

likely to be efficient?

A. Mean-per-unit estimation.

B. Ratio estimation.

C. Difference estimation.

D. Sequential sampling estimation.

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-07 Describe the difference and ratio methods of estimation.

Topic: Classical Variables Sampling

9-48

54. Which of the following statements is correct concerning the use of nonstatistical sampling

for substantive tests?

A. Its use is generally acceptable only for populations with an immaterial book value.

B. It requires the use of structured sample size selection techniques to be acceptable.

C. It may be especially useful in circumstances in which the combination of inherent and

control risk is at the maximum level.

D. Results will be projected to the population.

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-01 Distinguish between statistical and nonstatistical sampling.

Topic: Statistical and Nonstatistical Sampling

55. Which of the following situations will result in the auditors concluding that the risk of

material misstatement is too high when using nonstatistical sampling for substantive tests?

A. The projected misstatement exceeds the tolerable misstatement.

B. The allowance for sampling risk exceeds the projected misstatement.

C. The risk of incorrect acceptance exceeds the risk of incorrect rejection.

D. The tolerable misstatement exceeds the sample net misstatement.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-08 Plan; perform; and evaluate samples for substantive procedures using nonstatistical methods.

Topic: Nonstatistical Sampling for Substantive Procedures

9-49

56. During the final planning of the accounts receivable program a CPA specified a tolerable

misstatement of $30,000, instead of the $20,000 contained in the preliminary audit program.

What would be the impact of this change?

A. A decrease in population standard deviation.

B. An increase in sample standard deviation.

C. An increase in required sample size.

D. A decrease in the required sample size.

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

57. Which of the following is an advantage of systematic selection over random number

selection?

A. It provides a stronger basis for statistical conclusions.

B. It enables the auditor to use the more efficient "sampling with replacement" tables.

C. There may be correlation between the location of items in the population, the feature of

sampling interest, and the sampling interval.

D. It does not require establishment of correspondence between random numbers and items in

the population.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-02 Describe the methods of selecting a representative sample.

Source: AICPA

Topic: Statistical and Nonstatistical Sampling

9-50

58. Statistical sampling generally may be applied to test internal control when the client's

internal control procedures:

A. Depend primarily on appropriate segregation of duties.

B. Are carefully reduced to writing and are included in client accounting manuals.

C. Leave an audit trail in the form of evidence of compliance.

D. Enable the detection of material fraud in the accounting records.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Source: AICPA

Topic: Audit Sampling for Tests of Controls

59. Which of the following statements is correct about the sample size in statistical sampling

when testing internal controls?

A. The auditor should consider the tolerable rate of deviation from the controls being tested in

determining sample size.

B. As the likely rate of deviation decreases, the auditor should increase the planned sample

size.

C. The allowable risk of assessing control risk too low has no effect on the planned sample

size.

D. Of all the factors to be considered, the population size has the greatest effect on the sample

size.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Source: AICPA

Topic: Attributes Sampling

9-51

60. To determine sample size in an attribute sampling application, what must be specified?

A. Population mean, expected error rate, allowance for sampling risk.

B. Allowance for sampling risk, risk of assessing control risk too low, standard deviation.

C. Allowance for sampling risk, risk of assessing control risk too low, expected deviation rate.

D. Population mean, standard deviation, allowance for sampling risk.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Source: IIA

Topic: Attributes Sampling

61. The tolerable deviation rate in sampling for tests of controls is:

A. Used to determine the probability of the auditor's conclusion based upon reliance factors.

B. The probability that the financial statements are not materially in error.

C. A measure of the reliability of substantive tests.

D. The rate the auditor will tolerate without modifying the planned assessment of control risk.

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Topic: Attributes Sampling

9-52

62. In testing accounts receivable, an auditor sends out positive confirmation requests to 100

randomly selected customers. A customer returns the confirmation indicating that the balance

is correct when, in fact, the balance is overstated. This is an example of:

A. Projected misstatement.

B. Sampling error.

C. Standard error.

D. Nonsampling error.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-01 Distinguish between statistical and nonstatistical sampling.

Source: IIA

Topic: Statistical and Nonstatistical Sampling

items. From experience, the auditor knows that a few specific items are subject to unusually

large amounts of shrinkage. In using statistical sampling, the auditor's best course of action is

to:

A. Eliminate any of the items known to be subject to unusually large amounts of shrinkage.

B. Increase the sample size to lessen the effect of the items subject to unusually large amounts

of shrinkage.

C. Stratify the inventory population so that items subject to unusually large amounts of

shrinkage are reviewed separately.

D. Continue to draw new samples until a sample is drawn which includes none of the items

known to be subject to large amounts of shrinkage.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-02 Describe the methods of selecting a representative sample.

Source: IIA

Topic: Statistical and Nonstatistical Sampling

9-53

64. If all other factors specified in an attributes sampling plan remain constant, changing the

specified tolerable rate from 6% to 10%, and changing the specified risk of assessing control

risk too low from 3% to 7% would cause the required sample size to:

A. Increase.

B. Remain the same.

C. Decrease.

D. Change by 4%.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Source: AICPA

Topic: Attributes Sampling

65. Which of the following factors does an auditor need to consider in planning a particular

audit sample for a test of control?

A. Number of items in the population.

B. Total dollar amount of the items to be sampled.

C. Acceptable level of risk of assessing control risk too low.

D. Tolerable misstatement.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Source: AICPA

Topic: Attributes Sampling

9-54

66. When using a statistical sampling plan, the auditors would probably require a smaller

sample if the:

A. Population increases.

B. Desired allowance for sampling risk decreases.

C. Desired risk of incorrect acceptance increases.

D. Expected deviation rate increases.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Source: AICPA

Topic: Audit Sampling for Tests of Controls

67. Which of the following statements is correct concerning statistical sampling in tests of

controls?

A. The population size has little effect on determining sample size except for very small

populations.

B. The expected population deviation rate has little or no effect on determining sample size

except for very small populations.

C. As the population size doubles, the sample size also should double.

D. For a given tolerable rate, a larger sample size should be selected as the expected

population deviation rate decreases.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Source: AICPA

Topic: Attributes Sampling

9-55

A. Mathematically measure risk.

B. Eliminate the need for judgmental decisions.

C. Define the values of allowance for sampling risk and tolerable misstatement required to

provide audit satisfaction.

D. Have been established in the courts to be superior to judgmental sampling.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-01 Distinguish between statistical and nonstatistical sampling.

Source: AICPA

Topic: Statistical and Nonstatistical Sampling

69. In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control

risk too high relate to the:

A. Efficiency of the audit.

B. Effectiveness of the audit.

C. Selection of the sample.

D. Audit quality controls.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Source: AICPA

Topic: Audit Sampling for Tests of Controls

9-56

70. When performing a test of a control over cash disbursements, a CPA may use a systematic

sampling technique with a start at any randomly selected item. The biggest disadvantage of

this type of sampling is that the items in the population:

A. Must be recorded in a systematic pattern before the sample can be drawn.

B. May occur in a systematic pattern and destroy the sample randomness.

C. May systematically occur more than once in the sample.

D. Must be systematically replaced in the population after sampling.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-02 Describe the methods of selecting a representative sample.

Source: AICPA

Topic: Statistical and Nonstatistical Sampling

71. While performing a substantive test of details during an audit, the auditor determined that

the sample results supported the conclusion that the recorded account balance was materially

misstated. It was, in fact, not materially misstated. This situation illustrates the risk of:

A. Incorrect acceptance.

B. Incorrect rejection.

C. Assessing control risk too high.

D. Assessing control risk too low.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Source: AICPA

Topic: Audit Sampling for Substantive Procedures

9-57

72. An auditor plans to examine a sample of 20 checks for counter signatures as prescribed by

the client's control procedures. One of the checks in the chosen sample of 20 cannot be found.

The auditor should consider the reasons for this limitation and:

A. Evaluate the results as if the sample size had been 19.

B. Treat the missing check as a deviation for the purpose of evaluating the sample.

C. Treat the missing check in the same manner as the majority of the other 19 checks, i.e.,

countersigned or not.

D. Choose another check to replace the missing check in the sample.

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Source: AICPA

Topic: Attributes Sampling

73. There are many kinds of statistical estimates that an auditor may find useful, but basically

every statistical estimate in auditing is of either a quantity or of an error rate. The statistical

terms that roughly correspond to "quantities" and "occurrence rate," respectively, are:

A. Attributes and variable.

B. Variables and attributes.

C. Constants and attributes.

D. Constants and variables.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-03 Understand the different types of sampling plans used in auditing.

Source: AICPA

Topic: Statistical and Nonstatistical Sampling

9-58

74. Which of the following best illustrates the concept of sampling risk?

A. A randomly chosen sample may not be representative of the population as a whole on the

characteristic of interest.

B. An auditor may select audit procedures that are not appropriate to achieve the specific

objective.

C. An auditor may fail to recognize deviations in the documents examined for the chosen

sample.

D. The documents related to the chosen sample may not be available for inspection.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-01 Distinguish between statistical and nonstatistical sampling.

Source: AICPA

Topic: Statistical and Nonstatistical Sampling

75. Which of the following statistical selection techniques is least desirable for use by an

auditor?

A. Systematic selection.

B. Stratified selection.

C. Block selection.

D. Sequential selection.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-02 Describe the methods of selecting a representative sample.

Source: AICPA

Topic: Statistical and Nonstatistical Sampling

9-59

76. Various factors influence the sample size for a substantive test of details of an account

balance. All other factors being equal, which of the following would lead to a larger sample

size?

A. Lower assessment of control risk.

B. Greater reliance on analytical procedures.

C. Smaller expected frequency of misstatements.

D. Smaller measure of tolerable misstatement.

AACSB: Technology

AICPA BB: Critical Thinking

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-04 Explain the effects of changes in various population characteristics and changes in sampling risk on required

sample size.

Source: AICPA

Topic: Statistical and Nonstatistical Sampling

77. An important statistic to consider when using a statistical sampling audit plan is the

population variability. The population variability is measured by the:

A. Sample mean.

B. Standard deviation.

C. Standard error of the sample mean.

D. Estimated population total minus the actual population total.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-05 Plan; perform; and evaluate samples for tests of controls using statistical and nonstatistical methods.

Source: AICPA

Topic: Audit Sampling for Tests of Controls

9-60

78. In variables estimation sampling, the sample standard deviation is used to calculate the:

A. Point estimate of central tendency.

B. Tainting of the sample interval.

C. Risk of incorrect acceptance.

D. Adjusted allowance for sampling risk.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Remember

Difficulty: Easy

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Source: AICPA

Topic: Classical Variables Sampling

79. Use of the ratio estimation sampling technique to estimate dollar amounts is inappropriate

when:

A. The total book value is known and corresponds to the sum of all the individual book

values.

B. A book value for each sample item is unknown.

C. There are some observed differences between audited values and book values.

D. The audited values are nearly proportional to the book value.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-07 Describe the difference and ratio methods of estimation.

Source: AICPA

Topic: Classical Variables Sampling

9-61

Matching Questions

80. Auditors have a variety of sampling approaches available. For each approach in the first

column, identify the correct statement in the second column. Each statement may be used

once, more than once, or not at all.

1. Attributes sampling

3. Discovery sampling

4. Probability-proportional-to-size

sampling

5. Mean-per-unit estimation

sampling

method that arrives at an estimated

deviation rate.

A classical method that uses both the

audited and book values of items in the

sample to obtain an estimated total audited

value.

A method that is most effective in

circumstances in which auditors expect a

very low rate of occurrence of some

critical deviation (e.g., a fraudulent cash

disbursement).

A classical method that uses only the

audited values of items in the sample (not

the book values) to obtain an estimated

total audited value.

A method that defines the sampling unit

as each individual dollar.

A classical method that uses both the

audited and book values of items in the

sample to obtain an estimated total audited

value.

AACSB: Analytic

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-03 Understand the different types of sampling plans used in auditing.

Topic: Statistical and Nonstatistical Sampling

9-62

5

4

Essay Questions

81. Audit sampling is used in conjunction with many audit tests, and may be performed on a

statistical or nonstatistical basis.

a. Define the term audit sampling.

b. List and explain two advantages of the use of statistical sampling as compared to

nonstatistical sampling.

a. Audit sampling is performing a test on less than 100 percent of an audit population to make

a conclusion about a characteristic of the population.

b. Statistical sampling may assist the auditors in (only two required):

Designing efficient samples.

Measuring the sufficiency of the evidence obtained.

Objectively evaluating sample results (measuring sampling risk).

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Decision Making

AICPA FN: Leveraging Technology

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-01 Distinguish between statistical and nonstatistical sampling.

Topic: Statistical and Nonstatistical Sampling

9-63

82. Teal Corporation has 2,000 accounts receivable, with a total book value of $200,000.

Ricardo Ramaro, CPA, has selected and audited a sample of 100 of the accounts with a

combined book value of $10,100; the total of their audited values was $11,000. Using the

mean-per-unit method, calculate the:

a. Accounts receivable estimated audited value.

b. Projected misstatement.

a. The accounts receivable estimated audited value is calculated as:

b. The projected misstatement is calculated as the difference between the estimated total

audited value and the book value, calculated as follows:

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Understand

Difficulty: Medium

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

9-64

83. The auditors are using mean-per-unit sampling to evaluate the reasonableness of the book

value of the accounts receivable of Smith, Inc. Smith has 10,000 receivable accounts with a

total book value of $800,000. The auditors estimate the population's standard deviation as

being equal to $25. After examining the overall audit plan, the auditors believe that the

account's tolerable misstatement is $40,000, and that a risk of incorrect rejection of .10 (risk

coefficient = 1.64) and a risk of incorrect acceptance of .15 (risk coefficient = 1.04) should be

used.

Required:

a. Calculate the required sample size.

Now ignore your sample size calculation in part "a," and assume that your answer was a

sample size of 289 (the square root of 289 is 17) and that you obtained the following results:

Average audited value of items in sample: $76

Average book value of items in sample: $78

Standard Deviation in the sample (audited values): $24

Standard Deviation in the sample (book values): $26

b. Using mean-per-unit sampling, calculate the projected misstatement for the population.

c. Using mean-per-unit sampling, calculate the adjusted allowance for sampling risk and use it

to form a statistical conclusion concerning the book value of the population ($800,000). That

is, calculate an interval and either "accept" or "reject" the client's book value.

9-65

a. The required sample size is calculated by first calculating the allowance for sampling risk

and then using it into the sample size formula as follows:

b. The projected misstatement is calculated by first calculating the estimated total audited

value and then subtracting it from the book value as follows:

Estimated total audited value = (Mean of audited values) x (Number of accounts)

Estimated total audited value = ($76) x (10,000 accounts) = $760,000

Projected misstatement = Estimated total audited value - Book value of population

= $800,000 - $760,000

= $40,000 overstatement

c. The adjusted allowance for sampling risk (ASR) may be calculated as follows:

9-66

Adjusted AR = $25,318

The acceptance interval is $760,000 $25,318. Accordingly, the population is rejected because

its book value of $800,000 is outside the interval.

AACSB: Technology

AICPA BB: Industry

AICPA BB: Leveraging Technology

AICPA FN: Leveraging Technology

AICPA FN: Measurement

Bloom's: Apply

Difficulty: Hard

Learning Objective: 09-06 Plan; perform; and evaluate samples for substantive procedures using mean-per-unit sampling.

Topic: Classical Variables Sampling

9-67

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